Homeowners are still feeling the pinch of sticky mortgage rates that refuse to cool down. Despite the Federal Reserve’s subsequent interest rate cuts in the last few months, the 30-year fixed rate mortgage rates continue to remain elevated toward the 7% mark. However, this seems to be a boon for real estate investing platforms, such as Arrived, that offer fractional home ownership options.
Here’s Why Millennials Are Afraid to Buy Homes
According to Freddie Mac’s (FMCC) 30-year fixed rate data released on January 2, 2025, mortgage rates peaked at an average of 6.91%, the highest point since July 2024. Moreover, the Fed expects to have only two more 25 basis point rate cuts in 2025, adding further pressure on the housing market. The only immediate relief could be provided by easing Consumer Price Index (CPI) numbers in the coming months. The next CPI reading is due on January 15.
As a matter of fact, several millennials are still wary about buying their own homes due to the high prices and sticky mortgage rates, as well as the prevailing uncertainty in the overall housing market. Home ownership is not as simple as it used to be, a low-risk asset that would eventually appreciate in value. Millennials are worried about the speculative nature of the asset that has seen wide price fluctuations during the past two economic downturns spanning the 2008-09 housing bubble and the COVID-19 pandemic.
Notably, an analysis of government data by Redfin Corp. (RDFN) found that the home ownership rate among 30-year-olds has fallen to 43%, while their preceding generation at that age had a 52% ownership rate. Moreover, according to the National Association of Realtors’ annual Profile of Home Buyers and Sellers, the median age of first-time home buyers jumped to 38 in June 2024, one of the highest to date, and was about seven years older than the usual age.
Arrived to the Rescue!
Investors looking for exposure to the residential real estate market despite the high mortgage rates can do so by investing through the Arrived platform. Interestingly, Arrived offers both full and fractional ownership of residential real estate properties. Investors can begin their investing journey with as little as $100 at their discretion. Investments in Arrived platforms become your income-earning assets without having to worry about the other nitty-gritty of rental homes. Arrived takes care of all the formalities and legalities right from vetting of homes, property selection, maintenance, and rent collection to renovations.
As the home prices have gone up, so has the rental income. Since 2020, rent prices across the board have increased owing to factors such as inflation, low inventory, barriers to ownership, shifting workforces with work-from-home or hybrid work options, and, funnily enough, an increasing preference for living alone. Importantly, the jump in single family rentals has been more than in multifamily rentals, making it an attractive investment option. According to Zillow Rentals, the median rent in the U.S., currently, for all beds and all home types is $2,000.
Investors can consider the price-to-rent ratio of different properties and locations to decide where to invest. For instance, a low price-to-rent ratio could be good for investors as this means that the property has the potential to generate higher returns in the long term, while the opposite holds true for a higher ratio.
To summarize, residential real estate investing with Arrived has proven to be beneficial for investors so far. According to the latest data available, in Q3 FY24, Arrived investors earned over $1.54 million in dividend income, up 25% from Q2 FY24. Remarkably, single-family residential properties earned an average of 3.7%, while vacation rental properties earned an average of 2.8%. If you haven’t yet made an investment decision, you can check the Arrived website for more information.
This article was written in partnership with Arrived. TipRanks may be compensated for its publication.
